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Simon Venture Group’s managing director talks retail funding

For growing e-commerce-only companies, the next frontier is physical retail, J. Skyler Fernandes, managing director for Simon Venture Group, said at the OnRamp Retail Conference in Chicago this week.

Simon Venture Group is the corporate venture capital arm of retail real estate company Simon Property Group. The venture group invests in retail technology for both online and offline shopping, funding early to later-stage high-growth companies. Its investments range from $250,000 to $5 million, according to its website.

Fernandes discussed SVG’s investments and how e-retailers today are increasing sales by opening physical stores. While Fernandes said only about 20% of the venture group’s current investments are immediately useful for its parent Simon, the goal of SVG is to be an industry focused investor, investing in retail brands as well as retail technology that can help retailers perform even better offline and online. In his discussion, Fernandes noted a trend toward more pure-play online retailers turning to stores to supplement online sales.

SVG-backed web players including BaubleBar Inc. are establishing fan bases online and then opening stores, Fernandes said. BaubleBar, which sells in its own stores and Nordstrom locations, in January raised $22 million in a funding round that included SVG as an investor.

Fernandes added that Simon properties currently have some of their highest occupancy rates, and he wouldn’t be surprised to see other web retailers, including Amazon.com Inc., open more physical stores.

Coincidently, just this week the Wall Street Journal reported that Amazon.com is planning to build convenience stores and develop curbside pickup locations for food shoppers in its latest move to expand into groceries. Amazon’s stores will sell perishable goods including milk and meats, the newspaper said, citing unnamed sources. Customers in the stores can also order other items with longer shelf lives for same-day delivery, the Journal said. Amazon declined to comment. Amazon is No. 1 in the Internet Retailer 2016 Top 500 Guide.

When online-only retailers first open stores, shoppers living nearby initially tend to shop at the physical location more than online, but in the second year that the store is open both web and store sales grow, Fernandes said. “There is a one-year lapse, but then e-commerce and store sales grow and continue to grow.”

Fernandes also discussed SVG’s investments, including e-retail vendor SmarterHQ, which takes in-store and e-commerce shopper data and uses it to create customized automated marketing campaigns. Such a campaign could include retargeting a shopper with a Facebook ad for a sweater she viewed, or sending an email reminder about a pair of boots a shopper left in her cart. The big benefit of SmarterHQ is that the campaigns are created automatically and use machine learning to improve based on the outcomes.

“I talk to retailers on a weekly basis and I always ask, ‘What is one retail technology where you are getting really great ROI?’” Fernandes said. “I usually get a lot of silence and not great answers.” But Fernandes said department store Bloomingdale’s told him it has earned its investment in SmarterHQ back 10 times over and that it would be one of the last programs it would consider cutting if it were trying to trim the bottom line. SmarterHQ has raised $20 million from investors including SVG, Battery Ventures and other angel investors.

Staffly Inc. is another company that's on Fernandes' radar. SVG isn't an investor in Staffly, but Fernandes discussed it as an innovative retail business model. “Retailers were asking us how they can make the store experience better beyond using technology in stores,” Fernandes said. The answer is, in part, hiring better staff, he said.

Staffly connects retailers with shifts to fill with Staffly workers who are employed and vetted by Staffly. The retailer schedules the employee via a mobile device for when it needs him. Staffly handles the time-consuming responsibilities of interviewing, background checks, training, payroll, workers’ compensation and taxes. And, those looking for work don’t have to search job boards or apply at a bunch of businesses.

“One retailer said it used to fire nearly one employee a day and now with Staffly that has decreased to one per month,” Fernandes said. Another benefit is that Staffly employees can split working time across several retailers so they can accumulate enough hours to take home a livable wage, Fernandes said.

Same-day delivery service Deliv is another of SVG’s investments. Deliv picks up and delivers online orders from stores. Retailers pay Deliv a delivery fee determined by how far drivers go to deliver a package. Drivers travel up to 15 miles from the store that fulfills the order, and retailers set their own price for the same-day service. In February, Deliv raised $28 million from SVG, Upfront Ventures and RPM Ventures and new investor, the UPS Strategic Enterprise Fund.

SVG also is putting a financial stake in what Fernandes calls the rental economy. For example, SVG-backed Le Tote allows shoppers to subscribe to rent everyday clothes for $39 to $69 per month. Shoppers also can purchase items they especially like at a discount. Le Tote, however, is taking its rental business one step further by using the data it collects on what consumers rent to develop its own clothing and accessories brands. Now, 60% of its rentals are of its four in-house brands that it developed. It also sells those brands at wholesale to retailers, Fernandes said. Le Tote also recently launched maternity apparel when it realized that becoming pregnant was a large reason women canceled their subscriptions. In November, Le Tote raised $15 million from SVG, Epic Ventures and others.

SVG also has invested in bridesmaid dress rental service Union Station. “It makes more sense to rent a bridesmaid dress than a tuxedo,” Fernandes said. “Because a tux you might wear a few more times, but a bridesmaid dress usually really looks like a bridesmaid dress, and you probably don’t want to wear it again.”